Straight Talk Financial Planning

inheritance

Residential Nil Rate Band

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Many of us know about the Nil Rate Band – the £325,000 relief we all have available to us as estate we can pass to anyone free of inheritance tax (IHT). And of course for married couples and those in a civil partnership this is transferable (i.e. your spouse or civil partner can ‘inherit’ your NRB) leaving you jointly with £650,000 to pass free of IHT.

But what about the Residential Nil Rate Band (RNRB)? This is an additional amount you can leave free of IHT that is applicable only to your main residential property and can only be utilised by your direct decedents – i.e. children (including grandchildren, stepchildren and adopted children).

Currently the amount stands at £150,000 per person and will raise again in April 2020 to £175,000 per person. It is not set to rise after this. As with the Nil Rate Band (NRB) it is transferable between Married partners and Civil partners. This will bring their total IHT free band to £1mill.

This sounds great, but it’s worth noting that unmarried couples and those without children cannot benefit from the relief. You should also be mindful of the RNRB if you are considering any trusts, either in your will or as part of your investment planning.

Some trusts – usually Discretionary Trusts – will mean you can’t utilise the RNRB, potentially negating the benefit of setting the trusts up in the first place. That doesn’t mean these trusts are not a good idea (they can be fantastic for protecting assets from divorce settlements, and for beneficiaries receiving disability benefits who need to ensure those benefits don’t get wiped out), but it does mean you need a Will writer that will go through all the pros and cons of writing a trust with you to make sure you can make the best informed decision for your family.

The myth of the common-law spouse

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The shape of families is changing. Many of us now, for so many valid reasons, decide marriage is not for us and raise our families together as unmarried couples, and why not? However, not surprisingly, the law has not kept pace with modern times and the idea that your life partner will be treated as a spouse is a myth.

Life partners are not considered next of kin in the eyes of the law. They do not benefit from Spousal Exemption for tax purposes, they do not count as a direct decedent so you will not be able to apply the Residential Nil Rate band for inheritance tax on your property.

If you pass without a Will (i.e. intestate) your partner will receive jointly owned assets and that is it. Which is an even more critical consideration if your property is not owned jointly.

Under the rules of intestacy, any children (from the current or previous relationships) or their issue will inherit the estate. If there are no children, the partner still does not inherit. The courts would look for surviving parents or siblings or even the Crown before considering the partner.

So what’s the answer? Get married and write your wills is the obvious solution, and if you’re not sure if you will marry or not, a simple contemplation of marriage clause into your mirror wills means your marriage will not invalidate any wills you make together. But if marriage is simply not on the cards good quality Wills are even more essential.

The kids are alright- guardians and inheritance

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Many of us write wills to protect our children when we are no longer around to do so ourselves. We want to be sure we have left them adequate financial resources to be at least comfortable and stable, and that its been left in such a way that it won’t be ravaged by the tax man.

And we want to ensure they will inherit at a time in life when they are perhaps more settled, and have worked any wild and reckless impulses out of their system. The assets we have spent our lives carefully nurturing are important to us, and we don’t want them squandered or perhaps preyed on by less than scrupulous partners. A well written will can protect from these eventualities.

But what about the most precious asset anyone could ever possess – the children themselves?

No one likes to think about what could happen if we pass whilst our children are still young, but sadly we should. We need to be sure we have nominated guardians we know will raise our children as we would wish, and if you can its always worth appointing reserve guardians as a back up.

Leaving a potential custody decision to social services gives absolutely no guarantee the eventual guardian will be someone we approve of. It can also be difficult if more than one family member would like to take on guardianship and your instructions are not clear.

What if you pass at a young age and your surviving spouse eventually re-marries? There are simple trusts that will ensure your half of the assets you have worked hard to grow together will be protected for your children, and not end up passing to a new spouse and any children they may bring with them to the family table.

Writing wills with our associates is a simple and painless process that can put all of these protections in place and give you real peace of mind, so the only question is what are you waiting for?